Carbon trading

What is carbon trading?

A market mechanism that allows companies to buy and sell carbon permits.

How do firms participate in carbon trading?

Firms that emit more CO2 than allowed can buy credits from companies that emit less.

What happens to the supply of carbon permits over time?

The supply of permits is capped and gradually reduced.

What economic impact does reducing the supply of carbon permits have?

It leads to a higher price for carbon permits.

How might higher carbon permit prices affect businesses?

It may create an incentive for businesses to invest in low-carbon technologies.

What does 'ceteris paribus' mean in the context of carbon trading?

It means 'all other things being equal', indicating that the effect of pricing is considered without other influencing factors.